Understanding Accumulation / Distribution (A/D) Indicator - Part 2

in hive-175254 •  6 months ago 

Hello everyone, hope you all are doing good? I'm back with the Part 2 and the Final Part of this amazing series, Understanding Accumulation / Distribution (A/D) Indicator. If you haven't read the Part 1, I strongly suggest you that by clicking here. In today's article, we should be explaining the A/D indicator better using it's formula & an illustration and also how to detect and confirm signals of the A/D indicator.


CMTrader_18-11-1024x639.jpg

Source


The formula for A/D indicator is,


A/D Indicator = Previous A/D + Current Money Flow Volume(CMFV)


Where;


CMFV = Money Flow Multiplier(MFM) x Current Volume


Where;


MFM = (Close price - Low Price) - (High Price - Close Price) / (High Price - Low Price)


Illustration

This is a real time illustration, using the BTC chart as at the moment of writing this article.


7.1.jpg


Important details from the chart above are;


Close Price = 54,994

Low Price = 39,607

High Price = 56,095

Current Volume = 71,081

Previous A/D = 71,538


MFM = (Close price - Low Price) - (High Price - Close Price) / (High Price - Low Price)


MFM = (54,994 - 39,607) - (56,095 - 54,994) / (56,095 - 39,607)

MFM = 15,387 - 1,101 / 16,488

MFM = 14,286 / 16,488

Money Flow Multiplier(MFM) = 0.87


CMFV = Money Flow Multiplier(MFM) x Current Volume


CMFV = 0.87 x 71,081

Current Money Flow Volume(CMFV) = 61,840


A/D Indicator = Previous A/D + Current Money Flow Volume(CMFV)


A/D Indicator = 71,536 + 61,840

A/D Indicator = 133,376


How to detect and confirm a trend through the A/D indicator?


8.1.jpg


From the image above, you can clearly see how to detect and confirm a trend through A/D indicator.

From the image, whenever price is falling, A/D indicator is falling too and whenever price is rising, A/D indicator is rising too. The reason for this, is that, when price is falling, this is the distribution period, hence, traders are selling, thus, price falls and A/D indicator falls too. And when price is rising, this is the accumulation period, traders are buying and hodling, thus, price rises and A/D indicator rises too.

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Thanks For Reading

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